(53)-THE PURPOSE OF CONTROL ACCOUNTS

The Purpose of Control Accounts

The reasons for having control accounts are as follows.

(1)-Check on the accuracy

They provide a check on the accuracy of entries made in the personal accounts in the sales ledger and purchase ledger. It is very easy to make a mistake in posting entries, because there might be hundreds of entries to make. Figures might get transposed. Some entries might be omitted altogether, so that an invoice or a payment transaction does not appear in a personal account as it should. By comparing,

• The total balance on the debtors control account with the total of individual balances on the personal accounts in the sales ledger.
• The total balance on the creditors control account with the total of individual balances on the personal accounts in the purchase ledger.
  It is possible to identify the fact that errors have been made.

(2)- Location of errors

The control accounts could also assist in the location of errors, where posting to the control accounts are made daily or weekly, or even monthly. If a clerk fails to record an invoice or a payment in a personal account, or makes a transaction error, it would be a formidable task to locate the error or errors at the end of a year, say, given the hundreds or thousands of transactions during the year.

By using the control account, a comparison with the individual balances in the sales or purchase ledger can be made for every week or day of the month, and the error found much more quickly than if control accounts did not exist.

(3)- For internal check

Where there is a separate of clerical bookkeeping duties, the control account provides an internal check. The person posting entries to the control accounts will act as check on a different person whose job it is to post entries to the sales and purchase ledger accounts.

(4)- More simply and quickly

To provide debtors and creditors balances more quickly for producing a trial balance or balance sheet. A single balance on a control account is obviously expected simpler and quickly than many individual balances in the sales or purchase ledger.

This means also that the number of accounts in the double entry bookkeeping system can be kept down to a manageable size, since the personal accounts are memorandum accounts only and the control accounts instead provide the accounts required for a double entry system.